Iran’s Economic Crisis Turning Into Economic Chaos
Mardo Soghom
Iran International
Iranians woke up Tuesday to see their currency at another historic low against the US dollar, which can herald the coming of truly uncontrolled inflation soon.
Iran International
Iranians woke up Tuesday to see their currency at another historic low against the US dollar, which can herald the coming of truly uncontrolled inflation soon.
One US dollar now can buy 380,000 rials. Compare that to 1978, right before the Islamic Republic was established and one US dollar back then could buy just 70 rials. No other economic indicator or analysis can portray the disaster so vividly.
The accelerated fall of the rial has led to reasonable concerns in Tehran business and media circles that soon the dollar will surpass the 400,000 mark in downward spiral for the rial no one can control.
The new low value of the rial means that a typical wage earner’s salary has fallen to around $100-120 a month, while food prices climb as the rial becomes worthless. Iran is to a large degree dependent on imports of essential commodities.
The same can be said about many other necessities, including medicines that either must be imported or the raw materials to produce local medicines must be bought from countries such as India.
Reports recently spoke of people exchanging household goods or personal items online for food. “My shirt for a few kilograms of rice,” read one personal ad, as people who were considered middle class just four years ago, now cannot afford the most basic food items.
Amid nationwide protests since mid-September, economic chaos can become a potential disaster for the clerical regime, that just seems incapable of managing an oil-dependent economy, let alone a productive one. Tens of millions of Iranians still have not taken part in anti-regime protests, mainly because of the deadly violence government forces are willing to use.
Security forces have killed around 500 civilians, injured thousands and arrested 20,000 people so far. Many middle-aged people with a family and children are simply afraid to go into the streets amid this degree of violence.
It is not clear why the government does not forcefully intervene in the market to prevent the currency’s fall.
The answer most probably is that the central bank does not have enough dollars to endlessly pump into the exchange market, because everyone tries to buy dollars. The prevailing political uncertainty and the specter of the dollar’s inevitable rise drive the hunger for the US currency and other hard currencies, as well as gold.
The rial steadily fell for 40 years from its golden days before the 1979 revolution to around 35,000 in early 2018. Then came Donald Trump’s decision to abandon the 2015 nuclear accord and demand concessions from Tehran by imposing crippling economic sanctions. The rial began a steep dive in the spring of 2018 and has steadily fallen since by more than tenfold.
The Islamic Republic has been able to circumvent US sanctions on its oil exports to an extent, selling less than half of its normal capacity to China but at a discount, just as Russia has been forced to do after Western sanctions. It is not even clear how much hard currency Tehran is fetching from these illicit exports through intermediaries.
Four years of US ‘maximum pressure’ sanctions have also contributed to the current anti-regime protests that are primarily driven by hopelessness of the young generation, as all they have seen in the past decade is decline in living standards, more isolation in the world and more repression.
So far, the clerical regime has refused to accept Washington’s offer of lifting many sanctions in return for a cap on Tehran’s nuclear program. The latest round of optimism for a new deal was back in August that did not materialize. Soon after the protests began in Iran and now the United States and its European allies are less willing to continue Tehran’s strategy of endless negotiations for getting more concessions.
Abutorabi's statement may possibly signal some kind of diversity in the rhetoric of Friday Prayer Imams, who in calmer times repeat a centrally crafted message to believers attending sermons on Fridays.
He advised government officials to behave based on ethical standards, as systematic financial corruption has become a characteristic of the Iranian government and its officials in recent years.
Abutorabi added that the officials' commitment to ethical standards is the only way to restore the government's lost social capital. Abutorabi's comments are in sharp contrast to remarks by other Friday Prayer leaders who have called on officials to tighten control over the society.
To highlight the difference in messaging recently, the Friday Imam in Mashad, Ahmad Alamolhoda has accused Iranian women who protest against compulsory hijab of being linked to foreign networks and the outlawed Mojahedin-e Khalq (MeK) opposition group. The hardliner Ahmad Khatami in Tehran on the same day thanked the Iranian judiciary for its quick verdict in issuing the death sentence for the 23-year-old protester Mohsen Shekari who was executed in Tehran December 8.
Meanwhile, Abutorabi criticized the government for wasting the country's gas and oil resources and paving the way for smuggling fuel out of Iran.
In another development, Hossein Marashi, the leader of the centrist pro-reform Executives of Construction Party has told a local website that "We should not sacrifice the country for the sake of one individual," adding that "We should attach priority to the people."
Most readers would have immediately assumed that he was speaking about the 83-year-old authoritarian ruler Ali Khamenei, but Marashi, probably realizing he might have gone too far, later underlined that he was referring to President Ebrahim Raisi, who is really not a major player amid the current crisis.
Speaking about the ongoing uprising in Iran, Marashi said: "This movement is fueled by the Islamic Republic's mistakes," adding that "We should not sacrifice the Islamic Republic for Raisi." He further explained that his party believes that "Current protests are the outcome of problems resulting from government officials' performance. Their performance has pushed the country to the point of explosion."
Marashi went on to say: "During the past five years, the county's usual 20% inflation rate increased to over 45% and at times to 60%. As far as foodstuffs are concerned, the inflation rate even reached 90%. The people are facing high inflation and high unemployment rates, and yet the government has not been doing anything about it."
He added: "Goods including medicine have become scarce and the people are angry and what the government did was ban social media and tighten compulsory hijab rules, which further angered the people. In foreign policy the government has been always creating tensions with the United States, Israel and Saudi Arabia."
He suggested that Iran should settle its disputes with Saudi Arabia and replace Ali Bagheri with Abbas Araqchi to conclude the differences over the nuclear deal with the United States as quickly as possible. "For how long we should wait for Raisi to solve the problems?" He asked.
Marashi also criticized the use of violence against protesters, which has resulted in about 500 deaths among civilians.
Marashi argued that 75 percent of Iranians are unhappy with the government's performance but only 5 percent take to the street. The government still has a chance to end the crisis, as long as this difference exists.
A report published by Shargh newspaper on Sunday has given several such examples of personal ads put on online sale platforms by Iranians who have resorted to selling their personal belongings to be able to provide food for their families.
The article said that the high rate of inflation and the resulting poverty has led to the new phenomenon, in which more and more people have resorted to exchanging their household and personal items for food.
According to the report, Iranian online sale platforms are full of ads by people who want to exchange their clothes, shoes, vacuum cleaners, and heaters with chicken, oil, rice or beans. For example, in one case a shirt is priced at about 2,600,000 rials – or less than $8 – which can buy about one kilogram of meat or about four kilograms of chicken.
The report also said that fruit prices have increased so much that people have started to buy fruits one piece at a time although Iranians were used to buying fruits in kilos when the prices were lower.
Iran’s point-to-point inflation for the previous Iranian calendar month – which ended November 21 – was about 50 percent with food inflation recorded at above 70 percent in 12 provinces.
The inflation rate for food items was especially high in the province of Sistan-Baluchestan, reaching a whopping 84 percent, with Lorestan province hitting 78 percent to be at second place. The two provinces are low-income regions where the quality of the items they consume are also lower than in other provinces.
The figures indicated a slower rise in prices as food price inflation reached even 100 percent in some provinces in previous months. According to the data published by the Statistical Center of Iran (SCI) in late July, the overall nationwide point-to-point annual food inflation rate in June 2022 compared with the same period in 2021 was 87 percent, but in four provinces the rate reached almost 100 percent.
Most price increases happened since early May when the government scrapped a food import subsidy to save around $15 billion annually. The move immediately triggered a massive rise in prices for basic food staples, such as bread, dairy products, cooking oil and meat.
Although the government has repeatedly said its oil exports are steadily increasing despite sanctions by the United States, economic conditions keep deteriorating, with Iran's battered currency, the rial, hitting historic lows in recent months with sporadic recuperations. The battered rial has dropped to a low of 370,000 against the US dollar, an almost 50-percent decline in 15 months. It was trading at 280,000 in August 2021 when the current hardliner president Ebrahim Raisi was elected.
The Iranian currency began to lose most of its value in 2018 when the United States pulled out of the nuclear accord known as JCPOA and imposed crippling economic sanctions. Since then, the currency has fallen more than tenfold against the dollar. Although the Islamic Republic has been able to partly circumvent the sanctions by illicit oil exports to China at discounted prices, the volume of around one million barrels per day is not sufficient to sustain the economy, which is mostly dependent on oil export revenues.
The so-called neighborhood youth groups have assumed a leading role in organizing protests when first they separately announced their existence on social media. These underground groups, whose members remain anonymous, use Twitter and Telegram as their main platforms. Several of the groups recently announced they had formed an alliance calling it United Youth of Iran (UYI).
The group said its manifesto circulated on social media on Sunday is meant to “pave the grounds for dialogue and cooperation” among various trade organizations, unions, political groups and activists inside Iran and abroad.
Iranian protesters have made it clear in the past three months that they are not seeking reforms within the system of the Islamic Republic. Their slogans against Supreme Leader Ali Khamenei show, they are seeking a revolution - a complete regime change. “This is not protest anymore, this is a revolution,” demonstrators often chant.
The youth groups alliance says getting rid of the Islamic Republic, separation of religion and state, and the “formation of an inclusive, democratic government” form the cornerstone of the 43-article manifesto, The document highlights the strictly secular nature of any future government.
The first article of the manifesto is inspired by a famous Persian poem from the 13th century poet Saadi, which is also inscribed on a large hand-made carpet at the United Nations headquarters in New York, that says:
"Human Beings are members of a whole
In creation of one essence and soul
If one member is inflicted with pain
Other members uneasy will remain
If you have no sympathy for human pain
The name of human you cannot pertain"
The articles of the manifesto emphasize the right of the Iranian people to self-determination, citizens' equality before the law, full equality of men and women, freedom of belief and religion, freedom of speech, freedom of forming trade and other unions, as well as personal freedoms.
“Political parties must have freedom of action within the framework of law, respect for the country’s territorial integrity, fundamental human rights, transparency, and they must abide by democracy,” article 22 of the manifesto says.
The country’s foreign policy should be based on securing national interests and maintaining global peace, and non-interference, the manifesto says, and underlines that the future government of Iran should be committed to international charters and conventions, including the Universal Declaration of Human Rights, International Covenant on Civil and Political Rights, International Covenant on Economic, Social and Cultural Rights, Convention on the Elimination of all Forms of Discrimination Against Women, and Convention on the Rights of the Child.
Several of the articles of the manifesto outline the future government’s duties to work for the welfare of its citizens, especially those not capable of providing for themselves without state assistance, provide free education and healthcare to all, protect the environment, and ensure that the rich pay their taxes in proportion to their income.
The manifesto can become an outline or a guide for a new, post-Islamic Republic constitution, reflecting the aspirations of a majority of young and older Iranians.